International Marketing

International Market Entry Strategies

Efforts By: Taranjit Singh

Overview1. Target Market Selection2. Choosing the Mode of Entry3. Exporting4. Licensing5. Franchising6. Contract Manufacturing7. Joint Ventures8. Wholly Owned Subsidiaries9. Strategic Alliances10. Timing of Entry11. Exit Strategies

IntroductionThe need for a solid market entry decision is an integral part of a global market entry strategy.Entry decisions will heavily influence the firms other marketing-mix decisions.Global marketers have to make a multitude of decisions regarding the entry mode which may include: (1) the target product/market(2) the goals of the target markets(3) the mode of entry(4) The time of entry(5) A marketing-mix plan(6) A control system to check the performance in the entered markets

1. Selecting the Target MarketA crucial step in developing a global expansion strategy is the selection of potential target marketsA four-step procedure for the initial screening process:1. Select indicators and collect data2. Determine importance of country indicators3. Rate the countries in the pool on each indicator4. Compute overall score for each country

1. Selecting the Target Market

2. Choosing the Mode of EntryDecision Criteria for Mode of Entry:Market Size and GrowthRiskGovernment RegulationsCompetitive Environment/Cultural DistanceLocal Infrastructure

2. Choosing the Mode of Entry

2. Choosing the Mode of Entry

2. Choosing the Mode of EntryClassification of Markets:Platform Countries (Singapore & Hong Kong)Emerging Countries (Vietnam & the Philippines)Growth Countries (China & India)Maturing and established countries (examples: South Korea, Taiwan & Japan)Company ObjectivesNeed for ControlInternal Resources, Assets and CapabilitiesFlexibility

2. Choosing the Mode of EntryMode of Entry Choice: A Transaction Cost ExplanationRegarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk.Transaction Cost Analysis (TCA) perspectiveTransaction-Specific Assets (assets valuable for a very narrow range of applications)

3. ExportingIndirect Exporting Export merchantsExport agentsExport management companies (EMC)Cooperative ExportingPiggyback ExportingDirect ExportingFirms set up their own exporting departments

4. LicensingLicensor and the licenseeBenefits:Appealing to small companies that lack resourcesFaster access to the marketRapid penetration of the global marketsCaveats:Other entry mode choices may be affectedLicensee may not be committedLack of enthusiasm on the part of a licenseeBiggest danger is the risk of opportunismLicensee may become a future competitor

5. Franchising Franchisor and the franchiseeMaster franchisingBenefits:Overseas expansion with a minimum investmentFranchisees profits tied to their effortsAvailability of local franchisees knowledgeCaveats:Revenues may not be adequateAvailability of a master franchiseeLimited franchising opportunities overseasLack of control over the franchisees operationsProblem in performance standardsCultural problemsPhysical proximity

5. Franchising

6. Contract Manufacturing (Outsourcing)Benefits:Labor cost advantagesSavings via taxation, lower energy costs, raw materials, and overheadsLower political and economic riskQuicker access to marketsCaveats:Contract manufacturer may become a future competitorLower productivity standardsBacklash from the companys home-market employees regarding HR and labor issuesIssues of quality and production standards

6. Contract Manufacturing (Outsourcing)Qualities of an ideal subcontractor:Flexible/geared toward just-in-time deliveryAble to meet quality standardsSolid financial footingsAble to integrate with companys businessMust have contingency plans

7. Expanding through Joint VenturesCooperative joint ventureEquity joint ventureBenefits:Higher rate of return and more control over the operationsCreation of synergySharing of resourcesAccess to distribution networkContact with local suppliers and government officials

7. Expanding through Joint VenturesCaveats:Lack of controlLack of trustConflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

7. Expanding through Joint VenturesDrivers Behind Successful International Joint Ventures :Pick the right partnerEstablish clear objectives from the beginningBridge cultural gapsGain top managerial commitment and respectUse incremental approachCreate a launch team during the launch phase:(1) Build and maintain strategic alignment(2) Create a governance system(3) Manage the economic interdependencies(4) Build the organization for the joint venture

8. Entering New Markets through Wholly Owned SubsidiariesAcquisitionsGreenfield OperationsBenefits:Greater control and higher profitsStrong commitment to the local market on the part of companiesAllows the investor to manage and control marketing, production, and sourcing decisions

8. Entering New Markets through Wholly Owned SubsidiariesCaveats:Risks of full ownershipDeveloping a foreign presence without the support of a third partRisk of nationalizationIssues of cultural and economic sovereignty of the host country

8. Entering New Markets through Wholly Owned SubsidiariesAcquisitions and MergersQuick access to the local marketGood way to get access to the local brands

Greenfield OperationsOffer the company more flexibility than acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology.

9. Creating Strategic Alliances Types of Strategic Alliances Simple licensing agreements between two partnersMarket-based alliances Operations and logistics alliancesOperations-based alliances

9. Creating Strategic Alliances The Logic Behind Strategic Alliances DefendCatch-Up RemainRestructure

9. Creating Strategic Alliances

9. Creating Strategic AlliancesCross-Border Alliances that Succeed:Alliances between strong and weak partners seldom work.Autonomy and flexibilityEqual ownership

9. Creating Strategic AlliancesOther factors: Commitment and support of the top of the partners organizationsStrong alliance managers are the keyAlliances between partners that are related in terms of products, technologies, and marketsHave similar cultures, assets sizes and venturing experienceTend to start on a narrow basis and broaden over timeA shared vision on goals and mutual benefits

10. Timing of EntryInternational market entry decisions should also cover the following timing-of-entry issues: When should the firm enter a foreign market?Other important factors include: level of international experience, firm sizeAlso, the broader the scope of products and servicesMode of entry issues, market knowledge, various economic attractiveness variables, etc.

10. Timing of EntryReasons for exit:Sustained lossesVolatilityPremature entryEthical reasonsIntense competitionResource reallocation

11. Exit StrategiesRisks of exit:Fixed costs of exitDisposition of assetsSignal to other marketsLong-term opportunitiesGuidelines:Contemplate and assess all options to salvage the foreign businessIncremental exitMigrate customers

THANKS

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